There is power in data.
It’s emotionless and often at odds with loud blinking headlines. I learned long ago how distracting narratives rarely offer value. The flow of money tells the true story.
Markets are facing a barrage of tireless worries: banking crisis, recession fears, debt ceiling, sour sentiment, and more. You’d think the world was ending. It isn’t.
The fact is this: money flows have been healthy in 2023, reflective of our constructive theme YTD
. Being bullish has been unpopular. More importantly, it’s been profitable.
Today we’ll look at 2 areas garnering attention in our data. As earnings season heats up, chances are you‘re unaware of these outflows. That’s the real opportunity.
Then we’ll tie in the one macro chart of why our bullish thesis is in-tact.
Selling has been picking up the last few days. But, not in conventional headline-driven areas like regional banks and Real Estate. Everyone knows those parts of the market have been under stress for some time due in large part to elevated interest rates.
That’s not where the Big Money action is at.
The latest rotation is in 2 of the strongest groups in our data this year: Discretionary and Technology. This is interesting because these areas have been in pole position in 2023.
Let’s start with the Discretionary space. Below, I’ve outlined the daily count of buys and sells in the group. On Tuesday, 19 discrete names were sold, representing 9% of our institutional universe. This is notable given it’s the most outflows in a month:
At first glance, this may appear negative, but it’s not. Selling is typical during “liquidity events” like earnings season. Portfolio managers use these moments to refresh their views by nipping and tucking their positions.
New money gets deployed and thus new trends begin.
Similar style action is occurring in the Technology space, which can be surprising given the NASDAQ’s meteoric leadership in 2023. The NASDAQ 100 (NDX) has gained 17% YTD.
Diving below shows how Tuesday signaled heavy trading action. 46 companies, mostly semiconductors, saw sell activity representing 21% of our institutional universe.
The chart below tells us to expect upside in the days ahead for the group. Historical sell patterns of this magnitude tend to offer great entry points for select high-quality stocks:
My conviction only amplifies in these 2 areas given their leadership position all year. Below, you’ll see how Tech and Discretionary reign supreme in terms of our proprietary scores:
Distracting narratives are great to opine on because they’re a fun exercise. However, tracking Big Money activity draws attention to positioning and alpha generation.
Which brings me to my final chart. Two weeks ago, Alec Young made the case that the feared earnings apocalypse is still a no show. If you want to know what drives stock prices, it’s earnings.
Smart investors are “looking through” the wildly projected earnings softness in 2023. They are positioning for what’s to come in 2024. Afterall, we’re in the midst of the most anticipated recession in history!
Don’t focus on distracting narratives, follow the money.
Let’s wrap up.
Here’s the bottom line: Markets are in a congestion zone. Our 2 strongest sectors have come under pressure, Discretionary and Technology. Based on similar-style selling and high-quality attributes, these areas are due for upside.
Focus less on distracting narratives and more on where the money’s flowing.
Many companies under pressure are in secular bullish trends. You just need a map to spot them!
Spot the opportunity.
Have a great week!